Australia Must Wean Itself From China

April 16 (Bloomberg) -- Viewed from afar, even the bad news
in Australia looks pretty good. Unemployment reached a three-year high last month and is now all of 5.6 percent. Leaders such
as U.S. President Barack Obama and French President Francois
Hollande would kill for such a number. Australia has avoided a
recession for 21 years, boasts a budget remarkably close to
surplus and continues to enjoy low inflation. On any economic
report card, the country deserves a string of A’s.

That stellar performance should make Prime Minister Julia
Gillard a shoo-in for another term, right? Oddly, the prospects
for Gillard’s Labor Party in September elections appear to dim
with each new batch of economic data. Less than 30 percent of
Australian voters are satisfied with the prime minister -- her
weakest numbers since September 2011. (Only 35 percent are
satisfied with opposition leader Tony Abbott, according to a
Newspoll survey published in the Australian newspaper on April
9.) Economic insecurity ranks as the main concern among voters.
A reminder was delivered yesterday, when China reported slowing
growth, sending Australia’s main stock index down the most in a
month.

“I’m fed up with this government telling me, over and over,
how lucky we are, how everyone is jealous of Australia,” Laurie
Bracker, a 34-year-old insurance agent, said in Sydney last
week. “We need less talk and more help dealing with rising
prices, and more progress creating new and better paying jobs.”

No Thanks

Such concerns aren’t unique to Australia, of course, but
they speak to Gillard’s paradox. Her almost three-year-old
government has played by the rules: It has kept the national
budget in, or close to, surplus, has conducted monetary policy
credibly and has done more than others to tax the carbon
emissions heating up our planet. And what thanks has Australia
gotten for heeding the gospels the West once preached so
piously? An overvalued Australian dollar that is hollowing out
the country’s export industries.

When we think of economies vulnerable to the dark side of
zero-interest rates, countries such as the U.S. and Japan,
Brazil and Thailand, leap to mind. Yet Australia’s currency has
soared 75 percent against the U.S. dollar and 89 percent versus
the yen since the 2008 collapse of Lehman Brothers Holdings Inc.
precipitated a global financial crisis. When I asked government
officials and business leaders in Sydney last week why they were
so glum about the future, three words kept coming up: the strong
dollar.

Even so, it’s time for Australian leaders to stop
complaining about the unfairness of the situation and start
addressing the real weaknesses in their underlying economy. For
years now, theirs has been, as the title of Donald Horne’s 1964
book had it, a “lucky country.” Arguably, no developed economy
has benefited more from the reforms unleashed in China by Deng
Xiaoping in the late 1970s. The Chinese boom has led to soaring
demand for Australia’s natural resources, such as iron ore, coal
and copper.

As a result, rapid growth has come almost too easily.
Australia has benefited from skilled treasurers, including
Gillard’s right-hand man, Wayne Swan, and former Prime Minister
John Howard’s finance chief, Peter Costello. Yet they have only
really had to manage good times. Meanwhile, elected officials
have focused their energies on keeping the commodities boom
going. Mining takes up a disproportionate amount of the
government’s attention, for instance, even though it employs
just 2.5 percent of the working population.

Politicians forget that Horne meant the title of his book
sardonically. “Australia is a lucky country,” he wrote, “run by
second-rate people who share its luck.” Instead of using the
strong dollar as an excuse to wean themselves off China,
politicians in Canberra and corporate executives from Sydney to
Perth are urging the central bank to come to their rescue.
Gillard and others are essentially abdicating their
responsibilities to Glenn Stevens, the Reserve Bank of Australia
governor.

Drying Up

Australian leaders should instead be using this time to
prepare the country for the day when Chinese demand inevitably
begins to dry up. The government should be taking advantage of
the lowest benchmark rates in 53 years to borrow and invest.
Funds are required to rebuild crumbling infrastructure and
upgrade the education system, to encourage a shift to higher
value-added manufacturing and to promote innovation.

Australian industry, too, must find ways to remake itself:
ways to compete, create jobs, increase productivity and address
the risks posed by climate change. At a time when the strong
dollar is “decimating” exports, says Terry Davis, group managing
director at Coca-Cola Amatil Ltd., “the only answer is better
research and development.” As Swiss and German companies have,
Australian firms must seek out value-adding niche industries
that are more reliant on human capital.

Australian firms also should use the brawny dollar to start
acquiring companies overseas. Nothing buys financial influence
these days like a stable of multinational giants. If the Chinese
can use their strengthening currency to acquire corporate gems,
why can’t the Australians? Executives should zero in on the
technology, science, finance and transport names they fancy and
go after them.

Few doubt that Australia has great economic managers. But
the Chinese boom has made the job far too easy. What the country
needs now is for its leaders to start leading. Otherwise Gillard
may find herself adding to that unemployment number in a few
months.

(William Pesek is a Bloomberg View columnist. The opinions
expressed are his own.)